Abenomics decreases tax revenues

July 13, 2017

It is almost positive that tax revenue for FY 2016 will be reduced compared to FY 2015. The data summary of the closing account in the tax year ending in March 2017 (forecast) recently announced by the Ministry of Finance showed that total tax revenue of the national government’s general accounts was 55.5 trillion yen, down 0.8 trillion yen from 56.3 trillion yen in the previous year.

Revenues from three key taxes - income tax, corporate tax, and consumption tax -, all declined. In particular, corporate tax revenues marked the biggest drop in the total, falling from 10.8 trillion yen in FY 2015 to 10.3 trillion yen in FY 2016. This is partly because of deteriorating business performances due to exchange rate fluctuations over the same period, but mainly because of the lowering of the corporate tax rate in response to the demand of large corporations. As part of a pro-business economic policy, “Abenomics”, the Abe administration decided to slash the corporate tax rate to 23.4% in stages from 25.5% in 2012 when PM Abe took power.

Meanwhile, revenues from the consumption tax also decreased by about 200 billion yen to 17.2 trillion yen in FY 2016 from the FY 2015 level of 17.4 trillion yen. The decrease reflected the decline in consumer spending. Household consumption expenditure was lower than the same month of the previous year for 21 consecutive months. The slump in consumption is due to the consumption tax hike forcibly carried out in April 2014 by the Abe administration. The sluggish consumption led to the stagnation in the Japanese economy. Thus, revenues from income tax also declined by about 200 billion yen.